Question 1

What are the depreciation rates under Income Tax Act?

Accepted Answer

Key WDV rates under IT Act: Buildings residential 5 percent, buildings non-residential 10 percent, plant and machinery general 15 percent, motor vehicles 15 percent, computers and software 40 percent, furniture and fittings 10 percent, intangible assets 25 percent. First year gets 50 percent if asset used for less than 180 days.

Question 2

What is WDV method of depreciation?

Accepted Answer

Written Down Value method calculates depreciation on the reducing balance each year. Year 1 depreciation is applied on cost, year 2 on cost minus year 1 depreciation, and so on. The asset never reaches zero but approaches it. WDV is the mandatory method under Income Tax Act for computing taxable depreciation.

Question 3

What is the half-year rule for depreciation?

Accepted Answer

If an asset is put to use for less than 180 days in the year of acquisition, only 50 percent of the normal depreciation rate is allowed in that year. For example a computer purchased on 15th October used for only 168 days gets 20 percent depreciation instead of 40 percent in year 1. Full rate applies from year 2.

Question 4

What is the depreciation rate for computers?

Accepted Answer

Computers and computer software have a depreciation rate of 40 percent per annum under WDV method as per IT Act. This is the highest rate among common asset categories. With half-year rule the first year rate is 20 percent if used less than 180 days. A computer costing 1 lakh depreciates to about 7776 in 5 years.

Question 5

Can I claim depreciation on a car used for business?

Accepted Answer

Yes motor vehicles used for business qualify for 15 percent WDV depreciation under IT Act. For new vehicles costing above 10 lakh, actual cost is restricted for luxury vehicles. If used partly for personal purposes, proportionate depreciation must be reversed. Maintain a log book documenting business versus personal use.

Question 6

What is the difference between IT Act and Companies Act depreciation?

Accepted Answer

IT Act uses WDV method with specific rates for tax computation. Companies Act uses both WDV and SLM with useful life based rates per Schedule II for financial statements. IT Act depreciation reduces taxable income while Companies Act depreciation appears in financial statements. Both are calculated independently.

Question 7

What is additional depreciation for manufacturing businesses?

Accepted Answer

Manufacturing businesses that acquire new plant and machinery can claim additional depreciation of 20 percent of cost in the first year under Section 32(1)(iia). This is over and above normal depreciation. Total first year claim can be 35 percent (15 percent normal plus 20 percent additional) for new manufacturing assets.

Question 8

Is depreciation allowed on land?

Accepted Answer

No depreciation is not allowed on land under either IT Act or Companies Act. Land is considered a non-depreciating asset with unlimited useful life. Only the building constructed on land qualifies for depreciation. When purchasing property separate the land and building components in the purchase agreement for correct depreciation.

Question 9

What happens to depreciation when asset is sold?

Accepted Answer

When a depreciable asset is sold: if sale price exceeds WDV of the block the excess is taxable as short-term capital gain under Section 50. If sale price is less than WDV the difference is added back to the block for future depreciation. If the block becomes empty the entire WDV is treated as short-term capital gain or loss.

Question 10

Can depreciation create a business loss?

Accepted Answer

Yes unabsorbed depreciation can create or increase a business loss. Unabsorbed depreciation can be carried forward indefinitely until fully set off against future business income. This is different from business losses which can only be carried forward for 8 years. Depreciation is set off after current year business income is computed.

Question 11

What is block of assets concept?

Accepted Answer

Under IT Act, assets with the same depreciation rate are grouped into a block. Depreciation is calculated on the entire block not individual assets. When new assets are added their cost increases the block value. When assets are sold the sale proceeds reduce the block value. This simplifies depreciation computation significantly.

Question 12

What are intangible assets for depreciation?

Accepted Answer

Intangible assets eligible for 25 percent WDV depreciation include know-how patents copyrights trademarks licenses franchises or any other business or commercial rights of similar nature. Goodwill is no longer depreciable from FY 2020-21 onwards. Software licenses are treated as intangible assets at 25 percent not 40 percent.

Question 13

How does depreciation reduce tax liability?

Accepted Answer

Depreciation is a non-cash deduction from business income that reduces taxable profit. For a company at 25 percent tax rate every 1 lakh of depreciation saves 25000 in tax. For an individual at 30 percent bracket the saving is 30000 per lakh. This makes capital expenditure effectively cheaper by the tax rate percentage.

Asset Category	WDV Rate	Half-Year Rate	Block
Building — Residential	5%	2.5%	Block 1
Building — Non-Residential	10%	5%	Block 2
Building — Temporary (wooden)	40%	20%	Block 3
Furniture & Fittings	10%	5%	Block 4
Plant & Machinery (General)	15%	7.5%	Block 5
Motor Vehicles	15%	7.5%	Block 5
Computers & Software	40%	20%	Block 6
Energy-Saving Devices	40%	20%	Block 6
Intangible Assets	25%	12.5%	Block 7
Ships / Vessels	20%	10%	Block 8

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Depreciation Calculator — Income Tax Act WDV & SLM Method

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How to Use the Depreciation Calculator

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Depreciation Rates Under Income Tax Act

Key Depreciation Rules

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Frequently Asked Questions — Depreciation